For the most part, a savings account is not a complicated banking tool. You open an account, add some money to it and then watch it earn interest. But there’s actually more to savings accounts than you might think. Different types of savings accounts offer a wide variety of options to grow your money. To get the most out of your money, check out these six things you probably didn’t know about savings accounts.
- What Is a Savings Account?
- Facts You May Not Have Known About Savings Accounts
- Get the Best Rates at Brick-and-Mortar Banks by Having Multiple Accounts
- Online Savings Accounts Offer the Best Rates
- A Money Market Account Is a Type of Savings Account
- Your Money Is Safe Thanks To the FDIC and NCUA
- Avoid Overdraft Fees by Connecting Your Checking and Savings
- Opt Into Automatic Savings Programs
A savings account is a deposit product that enables customers to store their money safely and earn interest. Savings account deposits are generally easy to access, but funds still aren’t as liquid as they are with checking products. In many cases, money can only be withdrawn a maximum of six times per month through a bank teller or ATM. The required minimum deposit and interest rate will vary depending on the type of savings account you choose.
Savings accounts have expanded their reach and purpose over the years. For example, financial products like Health Savings Accounts are available, which allow people with high insurance deductibles to receive tax benefits.
Depending on where you bank, you’ll also have the advantage of federal insurance from either the National Credit Union Administration — for credit unions — or the Federal Deposit Insurance Corp. for banks.
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Following specific strategies to maintain a savings account could help boost your finances — and if you’re not taking advantage of them, you’re missing out on free money. Here’s what to know about savings accounts:
The interest rates on savings accounts at traditional banks aren’t spectacular, hovering at 0.07% on average. One way to make the most of the savings interest rates, however, is to have multiple accounts at your bank. Banks often look at your total balance across accounts to determine if you’re eligible for a higher tier of interest rates.
For example, although Bank of America offers 0.03% on its standard savings account, you can earn up to 0.06% if you qualify for the bank’s Preferred Rewards. To qualify, Bank of America looks at your balance across all your accounts, including checking and investment accounts. You can max out your interest at Bank of America by having multiple accounts or one account with a high balance.
To get the best savings account interest rates, go online. Several well-established online banks offer great rates. Ally, for example, offers 1.25% with no monthly maintenance fees and no minimum balance. Marcus by Goldman Sachs offers 1.70% with no fees and no minimum deposit.
The trade-off with online-only banks, however, is that there are no physical branches. So if a face-to-face banking relationship is important to you, this option probably won’t work well.
A money market account is a savings product that doubles as a checking account. Money market accounts usually earn more interest than a traditional savings account; however, the minimum opening deposit for a money market account is often higher than that of a traditional savings account.
Money market accounts sometimes pay more attractive rates for higher balances. For instance, the same bank might issue one rate for balances below $10,000, an increased rate for balances between $10,000 and $25,000 and an even higher rate for balances of $25,000 and above. This varies by bank, though, so review money market account details carefully before signing up.
In uncertain times with relatively low interest rates, it might be tempting to keep your funds in cash. But the FDIC was designed for uncertain times, in response to the bank failures of the 1920s and 1930s.
The FDIC insures up to $250,000 per depositor, per insured bank for each account ownership category. The account ownership category refers to who owns the account. For example, you may have a single account (one with just your name on it), and a joint account (one you own with someone else). The FDIC insures each of these accounts for up to $250,000. The NCUA offers similar coverage for accounts held at credit unions.
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Overdraft fees are expensive and unpleasant. If you have checking and savings accounts at the same bank or credit union, you can ask the bank to use your savings account as overdraft protection. That way, any time you overdraw your checking account, the funds will automatically be pulled from your savings.
Sometimes banks will charge for this type of funds transfer. Even so, it’s usually less money than a per-item fee for overdrafts. For example, Wells Fargo charges $12.50 for overdraft transfers from your savings account. It charges $35 per item, however, if you overdraw your account or have returned items — a fee that’s almost three times as much as the savings transfer.
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Many banks offer customers the option to automatically transfer money from their checking to savings. This seamless process can be set up over the internet, with the account holder in total control of amount and frequency. Some banks even offer customers incentives in the form of waived fees, just for automatically saving money.
Chase, for example, will waive monthly service fees for customers who set up automatic transfers totaling $25 or more into their Chase savings account every month. In addition, Bank of America created an interesting twist on automatic savings in the form of their Keep the Change savings program. Those who enroll in Keep the Change have all debit purchases rounded up to the nearest dollar. The difference from each purchase is then deposited into their savings account. Both options are a painless way to increase your savings balance.
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